"I first visited a Wall Street firm in 1984. I was there with my longtime collaborator Amos Tversky, who died in 1996, and our friend Richard Thaler, now a guru of behavioral economics.
Our host, a senior investment manager, had invited us to discuss the role of judgment biases in investing."
We tend to believe what we see and we have to believe what we see but it could result in illusion of validation.
We have to stop the losses now but we do find what we stop was not losses but profit. We have to buy the quality and later we find we buy the craps at gem's price. The past told some truth but could not be all about the future since market is not linear and never work consistently in one way. Some could be genius in one thing but when the situation changes, they could not be the stars any more. So we always predict something “but of course anything could happen.”
Army has the procedure to pick up the leaders through a series of test, through the field tests, training, and daily performance evaluation to pickup the winners to get rid off the illusion of validation. That is why even field test could not tell all but could show some traits of the future leaders. The Author is a psychologist but didn't see the power of continued test and evaluation, and fail to see the power of the organization and procedure, which could change people's behaviors even some of the stars would fail along the way.
How to change our behavior so that we could get the habit to be prudent, consistent, brave, and self-reliant in the market. Winning the war needs some lucks but no one could win the war if just laying down on the lucks. Could you organize yourself to put you in consistent change based on the changed environment with a certain vision and plan to deal with the inconsistent market?
How could you use a lot of illusion of validity from different angles and time points to get the winning probability more than 75% in all of the time in the market. Nothing is absolutely right or wrong but how good you know them and how you organize yourself to use the positive side and suppress the bad side.
Army uses the school, the promotion procedures, and evaluation of performance monthly or yearly to correct its biases from its illusion of validation. Usually the good army has better procedure and behavior to deal with this illusion.
Could you correct your illusion but not lose the validation for what you profit rather than the glossy illusion?
The market is not linear and the financial system is a huge control system. Illusion is unavoidable. Validation is necessary. How to strengthen the validation and suppress the illusion? We need a procedure to let us think bad things more when all predict the brightest future ahead and think good things more when things are really bad.
It is wrong to use any assertion to make us to view all the same. It is true when we use behavioral economics and psychologies. What's your illusion for what you believe?
Basically, most people contemplate a possible outcome (positive/negative), when they are engaged in trading/investing.
Because all possibilities exist participants have no control over the final result.
By following your own system/rules you can eliminate illusion, at least most of the time.
Guessing, hoping, praying etc...is a losers game.
And no...You don't need to win 75% of the time.
If you win 5 times out of 10 you will make money assuming that each time you win you make more than you lost (win/loss ratio).
So, to avoid illusion each time when your system is giving you buy/sell signal you should take it.
There is no other way... unless you are prepared to spend the rest of your life contemplating and/or speculating what may happen in UE, US or China...